Leading article: The damaging cost of economic inexperience

Wednesday 21 October 1998 23:02 BST

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THE GLOSS is finally coming off the Labour Government, and in the area where it is most vulnerable - its handling of the economy. Its troubles started earlier this month in Washington when the "iron" Chancellor, Gordon Brown, shamelessly tried to pressure a newly independent Bank of England to start a rapid round of interest rate cuts. It may have seemed good, as a story for the next day's papers. But it didn't resound well in a global financial world where monetary policy of individual countries have not only to be independent, but be seen to be entirely independent.

Now the Chancellor, and his Prime Minister, have been put on the back foot by the charges that lower growth rates, and darker projections for unemployment, will blow a hole right through the public expenditure announcements made, and acclaimed, only three months ago. It is not that the Government has somehow been found wrong or disingenuous in its former statements. William Hague's efforts, at Prime Minister's Question Time yesterday, to paint a picture of Downing Street incompetence and mendacity seemed - and were - pathetically partisan and overblown. The Conservatives had their chance to deliver a real blow on the Chancellor two weeks ago, when he made his statements in Washington, while the Tory party was meeting in Bournemouth. In political terms, the leader of the Opposition doesn't yet have the evidence to wound, let alone fell, the Government on this one. On the present figures, the Chancellor probably does have enough reserves to see him through the leaner times.

No, the real charge against Brown and Blair is not incompetence, but complacency. And inexperience amounting to negligence. This is a government that came in with a set, and largely commendable, approach to economics - of prudent fiscal policy and a tight monetary control exercised by an independent bank.

So far, economic growth, inflation and even job creation figures have favoured them. They have enjoyed good times and have looked, in the manner of the eternal optimism of balmy days, to a roll taking them on to a tax- filled, expenditure-expansive second election.

But good times don't last, least of all in the iron laws of the business cycle. Whether Britain is headed for real recession, and even deflation, is still unclear. What is likely, however, is that the growth rates we have seen for nigh on six years will slow, that there will be more large scale redundancies on the scale of Longbridge, and that Britain will face real problems of exclusion from the euro, at the same time as the knock- on effects of the Asian crisis and the international credit squeeze.

In these circumstances, it is no good castigating the Bank's Governor for talking in terms of resisting further falls in interest rates, or of the pain that must be suffered in the north to contain inflation in the south. Eddie George may be wrong. His intelligence systems may be less attuned than the US Federal Reserve's to the growing evidence of a credit crunch. But he is only acting according to his remit: to contain inflation and continue a stable monetary regime. That was what Gordon Brown set him free to do and the Chancellor must live with it now.

What the Government must now do instead is to act like a prudent economic policy maker, looking again at its plans for expenditure and revenue to make sure that they are "robust" to cope with new circumstances, whichever way they move. When Gordon Brown announces the new forecasts next month, it should be with the clear implication that he may have to change course over the future. When he issues his next budget, in March, he must be prepared to makes those changes. That is called the maturity of office.